Reverse sell signal! Bank of America: US stocks show typical signs of peak frenzy

U.S. stock market sentiment has entered the extreme optimism range, and Bank of America warns that risk assets are facing short-term correction pressure.

The latest "The Flow Show" report from BofA Securities shows that its core sentiment indicator, the Bull & Bear Indicator, has risen to 8.0, officially triggering a contrarian sell signal for risk assets. This is the 17th time the indicator has issued a sell signal since 2002. Historical data shows that global stock markets fall by an average of 2% to 3% within 2 to 3 months afterward, with a maximum drawdown of up to 15% to 20%.

Strategist Michael Hartnett noted in the report that the current market exhibits "bubble characteristics" with strong price performance, retail investor enthusiasm, and subdued volatility coexisting. The market concentration led by the "AI Big 10" (the Magnificent 7 plus Broadcom, AMD, and Micron) has approached 48%, surpassing levels seen during the "Roaring Twenties," the "Nifty Fifty" era in the 1970s, the Japanese bubble of the 1980s, and the tech bubble of the 1990s.

Meanwhile, fund flows this week show significant divergence: Technology stocks saw a weekly net inflow of $9 billion, marking the largest weekly inflow since October 2025; U.S. Treasuries had a weekly net inflow of $10.8 billion, the highest in nine weeks; cryptocurrencies suffered the largest weekly net outflow since February 2026, at $1.5 billion; emerging market equities have seen net outflows for six consecutive weeks; European equities are also seeing six straight weeks of fund withdrawals.

Bull & Bear Indicator triggers sell signal, sentiment indicators fully skewed bullish

The Bank of America Bull & Bear Indicator rose from 7.8 to 8.0 this week, officially crossing the threshold to trigger a contrarian sell signal. Among its components, the Fund Manager Survey (FMS) position is at the 95th percentile, showing “extremely bullish” sentiment; hedge fund positions, bond inflows, and credit market technicals are at the 74th to 75th percentile, also in “bullish” territory; global equity market breadth is at the 74th percentile.

BofA’s tracking of the FMS cash indicator shows that fund managers’ cash allocations dropped to 3.9%, also triggering a sell signal that has persisted for four weeks. The report indicates that the monthly rise in FMS equity allocations set a historical record, and combined with declining cash levels, this was the main driver of the Bull & Bear Indicator’s upward movement.

BofA private client data further confirms this extreme optimism: As of the latest statistics, BofA private client assets under management reached $4.5 trillion, with equity allocation rising to 65.7%, a new all-time high; bond allocation fell to 17.3%, the lowest since March 2022; cash allocation dropped to 9.9%, also a record low.

Fund flows: tech and treasuries attract funds, emerging markets and Europe keep losing

This week, global fund flows overall show a pattern of “strong bonds and tech, ongoing pressure in emerging markets and Europe.”

In bonds, net inflows this week totaled $30.5 billion, marking 56 consecutive weeks of net inflows. U.S. Treasuries saw a net inflow of $10.8 billion this week, the highest in nine weeks; investment grade bonds had a seventh consecutive week of net inflows; TIPS saw net inflows for 16 straight weeks.

In equities, there was a $2.4 billion net inflow this week, with ETFs posting net inflows of $20.6 billion and actively managed mutual funds seeing net outflows of $18.1 billion. Tech stocks had a weekly net inflow of $9 billion, the largest since October 2025; U.S. equities have seen eight consecutive weeks of net inflows, the longest streak since December 2025.

In contrast, emerging market equities had a net outflow of $7.9 billion this week, the sixth consecutive week and the longest streak since November 2024; European equities saw a net outflow of $2.3 billion, a sixth week in a row and the longest since February 2025. Financial stocks saw net outflows of $2.4 billion, the largest in 10 weeks; materials stocks lost $2.9 billion, the most in eight weeks. Cryptocurrencies saw net outflows of $1.5 billion, the largest weekly outflow since February 2026.

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